Justice Dep't Files Antitrust Suit To Block ATT/T-Mobile Merger

NYTimes DealBook:

The Justice Department filed a complaint on Wednesday to block AT&T’s proposed $39 billion acquisition of T-Mobile, a deal that would create the largest carrier in the country and reshape the industry.

The complaint, which was filed in the United States District Court for the District of Columbia, said that T-Mobile “places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition.” The complaint also highlighted T-Mobile’s high speed network and its innovations in technology.

Here is the complaint. Here is Department of Justice Statement:

In order to ensure that competition remains and that everyone – including consumers, businesses and the government – continues to receive high quality, competitively priced mobile wireless products and services, the Department of Justice today filed an antitrust lawsuit in U.S. District Court in Washington, D.C. to block AT&T’s acquisition of T-Mobile.

The Department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services.

More detailed analysis on the flip.

Quick stuff - the Justice Department is alleging that T-Mobile and ATT are competitors in the wireless business:

AT&T, with approximately 98.6 million connections to mobile wireless devices, and T-Mobile, with approximately 33.6 million connections, serve customers throughout the United States, with networks that each reach the homes of at least 90 percent of the U.S. population. AT&T and T-Mobile are two of only four mobile wireless providers with nationwide networks and a variety of competitive attributes associated with that national scale and presence. The other two nationwide networks are operated by Verizon Wireless ("Verizon") and Sprint Nextel Corp.

Sounds obvious, but defining competition and competitors is at the heart of the formula for merger/acquisition approval. Thus, the formula here is a 4 to 3 (from 4 competitors to 3.) This is not per se, an unapprovable acquisition because of that. The Government has to prove more (though the issue of the FCC's discretion is one I need to study and understand. I am providing a purely antitrust law as I understand it and experienced it analysis.) More as a I read.

Why taking T-Mobile would have an anti-competitive effect beyond the 4 to 3:

T-Mobile in particular -a company with a self-described "challenger brand," that historically has been a value provider, and that even within the past few months had been developing and deploying "disruptive pricing" plans -places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition. AT&T's elimination of T-Mobile as an independent, lowpriced rival would remove a significant competitive force from the market.

According to Justice, T-Mobile is a price competition driver in the market. More as a I read.

Defining the relevant market:

Mobile wireless telecommunications services include both voice and data services (e.g., texting and Internet access) provided over a radio network and allow customers to maintain their telephone calls or data sessions wirelessly when traveling. Mobile wireless telecommunications providers offer their services on a variety of devices including mobile phones, smartphones, data cards, tablet computers, and netbooks. In addition, an increasingly important group of customers are building mobile wireless capability into new devices, such as e-readers and vehicle tracking equipment, and contracting for mobile wireless telecommunications services on behalf oftheir own customers. There are no cost-effective alternatives to mobile wireless telecommunications services. Because neither fixed wireless services nor wireline services are mobile, they are not regarded by consumers of mobile wireless telecommunications services as reasonable substitutes. In the face of a small but significant price increase imposed by a hypothetical monopolist it is unlikely that a sufficient number of customers would switch some or all of their usage from mobile wireless telecommunications services to fixed wireless or wireline services such that the price increase or reduction in innovation would be unprofitable. Mobile wireless telecommunications services accordingly is a relevant product market under Section 7 of the Clayton Act, 15 U.S.c. § 18.

How the relevant geographic markets are determined by Justice:

Mobile wireless telecommunications services are sold to consumers in local markets that are affected by nationwide competition among the dominant service providers. It is therefore appropriate both to identify local markets in which consumers purchase mobile wireless telecommunications services and to identify the nature ofthe nationwide competition affecting those markets. AT&T's acquisition ofT-Mobile will have nationwide competitive effects across local markets.

[. . .] The nation's four largest providers of mobile wireless telecommunications services, including AT&T and T-Mobile, provide and market service on a nationwide basis. Other providers have limited networks that cover only particular localities and regions. Those smaller carriers typically do not market to customers outside of their respective network coverage areas, and may not even sell to such customers; therefore, local or regional carriers are not an attractive, or perhaps even available, option for those customers who live and work in areas outside of these smaller providers' respective network coverage areas.

Accordingly, from a consumer's perspective, local areas may be considered relevant geographic markets for mobile wireless telecommunications services. The Cellular Market Areas ("CMAs") that the FCC has identified and used to license mobile wireless telecommunications services providers for certain spectrum bands often approximate the areas within which customers have the same competitive choices. AT&T and -Mobile compete against each other in local markets across the United States that collectively encompass a large majority of U.S. mobile wireless telecommunications consumers. Indeed, AT&T and T-Mobile compete head to head in at least 97 of the nation's top 100 CMAs as well as in many other areas. These 97 CMAs alone include over half of the U.S. population. Each of these 97 CMAs [. . .] effectively represents an area in which the transaction likely would substantially lessen competition for mobile wireless telecommunications services and each constitutes a relevant geographic market under Section 7 of the Clayton Act, 15 U.S.c. § 18.

(Emphasis supplied.) Generally, this type of analysis is important when divestitures could cure the anti-competitive effects of an acquisition or merger. That seems highly unlikely in this case. But we read on.

Why divestitures can't cure the anti-competitive effects of the acquisition, according to Justice:

In competing for customers in the 97 markets identified in Appendix B and other CMAs, AT&T and T-Mobile (as well as Verizon and Sprint) utilize networks that cover the vast majority of the U.S. population, advertise nationally, have nationally recognized brands, and offer pricing, plans, and devices that are available nationwide. For a variety ofreasons, there is little or no regional variation in the pricing plans offered by the Big Four nationwide carriers. [. . .] Similarly, when the Big Four carriers make devices available to the public, they typically make them available nationwide. [. . .] In addition, the Big Four carriers generally deploy system technology on a nationwide basis, including critical components such as network standards, e.g., LTE or HSPA+. These technological choices are an important aspect of competition in the mobile wireless telecommunications services market.

The national decision-making of the Big Four carriers results in nationwide competition across local markets. Each of the Big Four firms making a competitive choice regarding a pricing plan, or other national competitive attribute, will consider competitive conditions across the United States, as the decision will take effect throughout the United States. Because competitive decisions affecting technology, plans, prices, and device offerings are typically made at a national, rather than a local, level, the rivals that affect those decisions generally are those with sufficient national scale and scope, i.e., the Big Four.

In short, it is a national market comprised of local markets. Divestitures won't work.

Measuring concentration - the HHI (Herfindahl-Hirschman Index)-

Concentration in relevant markets is typically measured by the Herfindahl-Hirschman Index ("HHI"), which is defined and explained in Appendix A to this Complaint. Preliminary market share estimates demonstrate that in 96 of the nation's largest 100 CMAs -all identified in Appendix B as representing relevant geographic markets for mobile wireless telecommunications services -the post-merger HHI exceeds 2,500. Such markets are considered to be highly concentrated. In one additional CMA identified in Appendix B, the post-merger HHI falls just below 2,500 and the market would be considered moderately concentrated.

If this standard holds, that's all she wrote. It's not a close case and there is not divestiture fix.

My final piece for now (have to do other stuff), this is not a close call for Justice if the market definitions are not malleable:

Nationally, the proposed merger would result in an HHI ofmore than 3,100 for mobile wireless telecommunications services, an increase ofnearly 700 points. These numbers substantially exceed the thresholds at which mergers are presumed to be likely to enhance market power.

In the national market for mobile wireless telecommunications services provided to enterprise and government customers, the proposed merger would result in an HHI of at least 3,400, an increase of at least 300 points. These numbers exceed the thresholds above which mergers are presumed to be likely to enhance market power.

Justice goes on to argue other points, such as barriers to entry, etc., but at the heart of the analysis is the market concentration, which is presumed to be anti-competitive at those HHI levels.

I'm not seeing a deal here. ATT would have to win in court. It seems they intend to try:

In a statement, AT&T said: “We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the D.O.J. that this action was being contemplated. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The D.O.J. has the burden of proving alleged anticompetitive affects and we intend to vigorously contest this matter in court.” That could mean a potentially lengthy court fight. Companies have triumphed over the Justice Department before, such as a federal judge sided with Oracle in its purchase of Peoplesoft in 2004. AT&T has one powerful incentive to try to salvage the deal. Under the terms of the agreement that AT&T signed with Deutsche Telekom, AT&T would pay a breakup fee of $3 billion in cash, as well as a roaming agreement and spectrum rights — an estimated total value of $6 billion — if the acquisition did not go through for regulatory reasons.
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  • Display: Sort:
    Wow (5.00 / 2) (#1)
    by andgarden on Wed Aug 31, 2011 at 10:16:22 AM EST
    I think that's amazingly good news.

    However, I am afraid that the Administration will use this to deflect attention from FCC approval. The FCC can stop the merger more easily.

    BTW, where's the complaint? (none / 0) (#2)
    by andgarden on Wed Aug 31, 2011 at 10:18:16 AM EST
    Treying to get it off PACER (none / 0) (#3)
    by Big Tent Democrat on Wed Aug 31, 2011 at 10:23:19 AM EST
    Not finding it even though I have the case number.

    DoJ has a statement (none / 0) (#4)
    by andgarden on Wed Aug 31, 2011 at 10:26:03 AM EST

    Smite news sites that quote legal documents without giving access to them!


    A copy (none / 0) (#11)
    by Jeralyn on Wed Aug 31, 2011 at 11:07:52 AM EST
    It ignores the Elephant in the Room (none / 0) (#23)
    by msaroff on Wed Aug 31, 2011 at 03:53:57 PM EST
    Which is that T-Mobile and AT&T are GSM carriers, and together control over 90% of the GSM market.

    What's more, if you want a phone that can work overseas, you have to use a GSM phone, because CDMA is pretty much just used in the US.


    Not much of an elephant (none / 0) (#33)
    by sangreal on Wed Aug 31, 2011 at 11:37:12 PM EST
    Verizon is a CDMA carrier, but they offer plenty of "world phones" which are multi-band for GSM support and have SIM slots. I'm sure Sprint does as well

    Trying not to get too excited (5.00 / 2) (#8)
    by Militarytracy on Wed Aug 31, 2011 at 10:52:15 AM EST
    that somebody up there on that Hill has a little bit of power and cares about not enabling the rich to simply take over the whole world :)

    Thank God. My SO has an unlocked GSM android phone (5.00 / 2) (#9)
    by Dan the Man on Wed Aug 31, 2011 at 10:54:39 AM EST
    we bought off the shelf and right now we're using a t-mobile affiliate.  We were afraid that after AT&T ate up T-mobile, the affiliate would close down and then we couldn't use our phone on any network except AT&T's.  And since AT&T automatically puts you on their mega-expensive smartphone data plan if you use a smartphone on their network (even if you don't need it - heck, we have wifi), our monthly phone bill would rise by 40+ dollars a month - more likely we would just choose a different provider.  This merger needs to be stopped.

    Cell phone charges are already inflated (none / 0) (#10)
    by Militarytracy on Wed Aug 31, 2011 at 11:04:12 AM EST
    on most of the existing networks.  I thought it was only a matter of time before they all ran out of a "better class of customers" :)  When this merger was announced though, what the hell....I guessed the market for good service was never going to become very competitive.  We aren't under a contract right now, we have been shopping around and frustrated and my husband dropped his phone months ago and shattered the screen.  It still works and it is insured but he would need to pay $50 to replace it and we don't even know which carrier we want to commit to.  So he's packing it around still while bits of the screen threaten to fall out :)

    I'm getting (5.00 / 1) (#14)
    by Ga6thDem on Wed Aug 31, 2011 at 01:22:44 PM EST
    out as soon as my contract expires and going prepaid. My son has a prepaid phone for $50 a month that includes a data plan which is less than I pay for a plan with pretty much just minutes. I don't really care about the bells and whistles and just want and phone and the bottom price with Sprint is $70.00--too much for as little as I use my cell phone.

    Our daughter is still prepaid living in town (none / 0) (#17)
    by Militarytracy on Wed Aug 31, 2011 at 02:48:12 PM EST
    We are up in the air, technically AT&T after they bought our old carrier but we are not under contract now.  Where we live can be/could be/used to be maybe...a challenge to get good service.  The technology is advancing though rapidly which means we end up asking people we discover with different service to come to our house and see what their service is like here.

    I had T-Mobile (none / 0) (#24)
    by Ga6thDem on Wed Aug 31, 2011 at 04:19:39 PM EST
    about 8 years ago and I couldn't get reception at my house but maybe I can get it now though I'm not sure I want to be locked into another contract.

    What company does your son use (none / 0) (#25)
    by caseyOR on Wed Aug 31, 2011 at 05:13:11 PM EST
    for his prepaid phone? My contract ended months ago, and I am looking to leave Verizon behind if I can find a better option that works for me.

    I, too, have little to no need for bells and whistles. Good battery life, good reception, that's pretty much all I require. I do prefer a flip phone since I usually carry my phone in my pocket.


    He uses (none / 0) (#26)
    by Ga6thDem on Wed Aug 31, 2011 at 05:23:04 PM EST
    Boost Mobile. He had to buy the phone but I've seen where you can turn any phone into a prepaid phone. I guess you could check online and see what they have.

    Thanks. (none / 0) (#27)
    by caseyOR on Wed Aug 31, 2011 at 05:28:20 PM EST
    Any phone can become a prepaid phone? I did not know that. I do like my current cell phone, a Motorola RAZR, which tells you how long I've had this phone.  It's Verizon I don't like. If I could go prepaid with the same phone, well, that would be great.

    Yes (none / 0) (#28)
    by Ga6thDem on Wed Aug 31, 2011 at 05:37:23 PM EST
    I had bought my sister a prepaid phone last year and when I was going online to get it set up, I saw a section on the website where it said you could turn any phone into a prepaid phone.

    Apparently Boost Mobile's cheapest plan is $50 but that's for unlimited. It's the same price that was quote above from T-Mobile but you have to have a contract with T-mobile and not with Boost.

    I'm just thinking prepaid because I can control my costs better. There are times when I only need to be paying $20 for a cell phone and other months when I might need to put $50 on it. It's not my only phone though and I have a house phone.


    Boost sounds great (none / 0) (#34)
    by Militarytracy on Thu Sep 01, 2011 at 10:09:21 AM EST
    Particularly if you can make any phone a Boost phone.  My husband uses his smart phone fully and probably always will which means I pay through nose with AT&T at the moment.  I will have to investigate Boost.

    I have ATT pay as you go on my Razor (none / 0) (#31)
    by nycstray on Wed Aug 31, 2011 at 06:33:15 PM EST
    It's the 2 buck a day plan, which I like. Most know to call my LL now, so the cell is just when I'm mobile or in the garden. Saves me a lot of money since my LL is 5 bucks a month as part of my comcast deal.

    You can contact ATT's customer service (none / 0) (#30)
    by jimakaPPJ on Wed Aug 31, 2011 at 06:26:07 PM EST
    and opt out of the service and actually block anyone from using it and incurring charges.

    And yes, this merger should be stopped.


    Hope this deters ATT from (5.00 / 2) (#12)
    by oculus on Wed Aug 31, 2011 at 12:47:49 PM EST
    It's plan to charge all customers for all data used, even w/i the good ole U.S. of A.

    Isn't it outrageous? (none / 0) (#13)
    by Militarytracy on Wed Aug 31, 2011 at 12:49:23 PM EST
    This action, (5.00 / 1) (#15)
    by cal1942 on Wed Aug 31, 2011 at 01:52:01 PM EST
    if successful, may also save jobs.

    FCC Chairman speaks: (none / 0) (#5)
    by andgarden on Wed Aug 31, 2011 at 10:36:33 AM EST
    "By filing suit today, the Department of Justice has concluded that AT&T's acquisition of T-Mobile would substantially lessen competition in violation of the antitrust laws," Federal Communications Commission Chairman Julius Genachowski said in a statement.


    I'll read the whole statement (5.00 / 1) (#6)
    by Big Tent Democrat on Wed Aug 31, 2011 at 10:42:00 AM EST
    but what you quote is well duh! That's why they sued.

    Sorry, I missed the rest (5.00 / 1) (#7)
    by andgarden on Wed Aug 31, 2011 at 10:43:50 AM EST
    "Competition is an essential component of the FCC's statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition," Genachowski said. "Vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile. Competition fosters consumer benefits, including more choices, better service and lower prices."

    Where they are wrong (5.00 / 1) (#29)
    by NYShooter on Wed Aug 31, 2011 at 05:51:09 PM EST
    "The Department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services."

    It is literally impossible for anyone, or any combination, to provide lower quality than A.T.&T. does presently.

    So that should be A.T. & T's argument: "We wouldn't be providing lower quality, we would merely be providing more of the lower quality we are presently already providing."


    Sprint to the rescue (none / 0) (#16)
    by Madeline on Wed Aug 31, 2011 at 02:36:24 PM EST
    Sprint to get the new Apple iPhone.

    Sprint Nextel Corp. will begin selling the new version of the Apple iPhone in mid-October, people familiar with the matter said, filling a huge hole in the No. 3 U.S. carrier's lineup and giving Apple Inc. another sales channel for its popular gadget. (WSJ)

    The deal could help prop up the nation's third-largest carrier and give AT&T Inc. more ammunition in its attempt to win regulatory approval for its proposed acquisition of No. 4 U.S. carrier T-Mobile USA Inc.

    I am assuming that 'prop' means that Sprint will take some of the iPhone business, prop up their consumer base, in addition to offering to Sprint Customers.

    Herbert Hovenkamp, a professor of law at the University of Iowa, said a Sprint iPhone would probably help AT&T's efforts, but he said the impact depends on how much regulators determine the deal curbs AT&T's ability to raise prices without losing too many sales.
    "The question is how much more competition do you get when you have two rivals rather than one," said Mr. Hovenkamp.


    Actually (5.00 / 1) (#21)
    by jbindc on Wed Aug 31, 2011 at 03:11:51 PM EST
    Sprint is helped by this.  Between announcing they are getting the iPhone and the various state lawsuits they have filed, this is very good for them - their stocks are up today.

    Rumors are also flying that if this deal falls through, Sprint and T-Mobile could look to combine to compete with the big guys.


    Competition isn't so fierce that it (none / 0) (#19)
    by sj on Wed Aug 31, 2011 at 02:54:58 PM EST
    can't be managed by a couple of phone calls between the two/three companies.  Yes, I know that's collusion but don't you think it's been happening all along?  

    I'm pretty much of the mind that the only place "competition" has any sort of real meaning is when applied to sports activities (that includes dancing :)

    Having said that, I would be most happy to see this merger quashed.


    My attitude as well (none / 0) (#22)
    by ruffian on Wed Aug 31, 2011 at 03:42:26 PM EST
    With only 3 or 4 main rivals, all they have to do is check the web for current rates every day. Don't even need phone calls or direct communication. If one wanted to start a real price war, they easily could. But they are not that different.